THE NEW STATUTE ON THE SOVIET INDUSTRIAL ENTERPRISE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A002400240001-8
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• Document Page Count: 15
• Document Creation Date: December 9, 2016
• Document Release Date: March 1, 2001
• Sequence Number: 1
• Publication Date: December 1, 1965
• Content Type: BRIEF

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THE` NtVvf STATUTE
QN ,.THE SOVIET U iUSTRIAL ENTERPRISE
Office. of Research, and Reports
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Title 18, USC, Secs. 793 and 794, the trans-
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 Approved For Release 2(01 2 _IC~4 qF~9T~010(~M002400240001-8
THE NEW STATUTE
ON THE SOVIET INDUSTRIAL ENTERPRISE*
The USSR, in a long-awaited overhaul of laws governing the legal
status, rights, and obligations of Soviet industrial enterprises, released
a new statute on 20 October 1965. It reduces the detailed regulation of
enterprises but fails to change significantly the centralized system of
output and. delivery assignments. The new statute, which comprises
only part of Premier Kosygin's program of economic reform, (1) provides
for all enterprises producing consumer goods to base their output plans
on direct contracts with the trade network, (2) exhorts all other enter-
prises to extend their use of direct contracts, and (3) allows all enter-
prises to make many decisions on the details of internal operation that
formerly were made for them by their superior agencies. The new
statute provides no details on the "economic levers" -- profits,. bonuses,
and interest charges -- outlined by Premier Kosygin.in his speech to
the September Plenum of the Party Central Committee.
The new statute must be judged. in combination. with the other parts
of Kosygin's program. The general intent of the program is to provide --
through the new economic levers -- positive motivation.of enterprise
managers to promote efficiency. The new statute is the permissive
aspect of the program, giving enterprises greater freedom of action.
The narrow limits on.this freedom continued by the statute plus the
restrictions imposed by existing policies on prices, wages, and employ-
ment, however, suggest that the gain in efficiency will be small at 'best.
But tautness of planning and bureaucratic interference in the affairs of
enterprises may obviate any potential gain. Final evaluation is pre-
mature at this time since the reforms are clearly tentative and pro-
visional. Furthermore, transition to the new system will be prolonged,
and substantial changes may be made in the statute as well as in other
aspects during the implementation period.
1. Background
Proposals to overhaul existing regulations in order to increase
the rights of industrial enterprises have circulated in Moscow for years.
Khrushchev, in a speech. to the November 1962 Plenum of the Central
Committee, set up a special commission to work out a new statute that
* The estimates and conclusions in this brief represent the best
judgment of this Office as of 29 November 1965.
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would accomplish this objective. Little has been made public of the
activities of this commission, but it was reported last spring that the
statute had gone through. several drafts. In his speech to the September
19b5 Plenum, Premier Kosygin revealed that immediately prior to the
Plenum the Council of Ministers had finally approved the statute as a
major element of the program of economic reform. The statute was
not made public until Zfl October, however, and it covers only part
of Kosygin` s program of economic reform. The incentive aspects of
the program. -- fhe"economic levers" (profits, bonuses, and interest
charges) -- have yet to be implemented by decrees.
2. Main Features of the Statute
The main changes in economic management provided by the new
statute are provisions for (1) direct contracting with the trade network
by all enterprises producing consumer goads, and (~) an increase in
the freedom of all enterprises, within narrow limits, to make many
decisions on internal operation that formerly were the subject of a
multitude of detailed and often arbitrary and conflicting regulations
by superior agencies. These decisions include determination of the
enterprise's detailed technical-industrial-financial plan (tekhpram-
finplan), the selection of pay and bonus systems for workers and for
managerial employees in subdivisions of the enterprise, and the
determination of the administrative structure and. staffing of the enter-
prise. Apart from the provisions governing enterprises producing
consumer goods, the statute makes no significant changes in the basic
features of the command economy -- that is, the methods of assigning
output and delivery targets and the system of allocating and supplying
materials and equipment.
The increase in internal operating powers of enterprises is aimed
at freeing them to respond mare readily to the pressures of the new
economic levers and also at increasing the efficiency with which they
carry out their output assignments. The workability of these pro-
visions and the amount of benefit they will contribute to economic
performance as a whole will depend on how effectively the new eco-
nomic levers -- the details of which are yet to be made public --
succeed in equating what is good for the enterprise with what is good
for the economy.
A. Direct Contracts
The new statute provides that all consumer goods enter-
prises are to base their output plans on direct contracts with the
- '~ -
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trade network but does not give a schedule for implementation, l~~o
details are given on how closely the system-will conform to recent
experiments. A system in which output plans are based- solely on
orders from the trade network was tested in some 400 light industry
enterprises during the last half of 1965. The objective of such a
system is to obtain a better adjustment of supply to quantities and
qualities of products demanded by customers than could be made
through central assignments. The new statute exhorts heavy industry
enterprises to make increased use of direct contracts with their
customers but minimizes their potential benefits by providing that:
such contracts are to supplement rather than replace central pro-
duction and delivery assignments.
B. Details of Enterprise Plans
The new statute provides that enterprises are to work out
proposals for their annual plans on the basis of centrally assigned,
output targets and a limited number of plan indicators, such as the
volume of output of the most important products, total sales, require-
ments for the supply of principal materials and equipment, profit,
and the wage fund. After these proposals have been confirmed by
the enterprise's superior agency, the enterprise will work out its
own detailed tekhpromfinplan. This plan is not subject to review,
and the enterprise is therefore not legally committed to it< Thus
the enterprise is freed from commitments to a mu~~t~itude of assign-
ments governing details, such as the output of its individual sub-
divisions, costs of specific products, and the productivity of :specific
units of equipment. In the past the difficulty of changing these
commitments during a plan period -- because of their large num-
bers and the need for prior approval by the enterprise? s superior
agency -- severely hampered the enterprise? s ability to adjust to
unforeseen circumstances or to take advantage of cost-saving
opportunities that might develop. The provision of the statute
requiring confirmation of major elements in the enterprise's plan?
however, retains a sharp limitation on the enterprise's freedom
of maneuver.
C. Pay and Bonus System s
The new sto,tute grants enterprises the power to select the
type of pay system -- time or piece rates -- for the various cate-
gories of their mutual workers and the bonus criteria to be applied.
'both to workers and to managerial, engineering-technical, and
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office employees in their subdivisions. These powers are limited
to choosing among a number of standard pay and bonus systems worked
aut by the State Committee for Labor and Wages. The statute does not
cover the new bonus provisions discussed by Kosygin for enterprise
directors and managerial employees in the central administrative
apparatus of the enterprise.
D. Employment
The impact of the reform program on employment has been
the subject of a recent controversy in the Soviet press. The principal
question involved in this controversy is whether or not enterprises X111
be free to dismiss unneeded wo;kers in large numbers. The new statute,
although granting _enterprises greater freedom to determine employment,
retains severe restrictions on the right to dismiss unneeded workers,
and thus should prevent widespread dismissals.
E. Other Internal Operating Decisions
The statute also grants enterprises powers to make numerous
other decisions affecting the efficiency of internal operations. Narrow
limits are placed on most of these decisions, either directly in the
statute or by reference to separate legislation. Enterprises are em-
powered to choose their own administrative structures and staffing
requirements from among a number of alterna ive standard tables
of organization worked out by superior authorities. Enterprises also
are granted greater freedom to determine haw they wish to apportion
their total expenditures on administration -- such as expenditures on
wages for managerial and office employees, the purchase of office
supplies, and travel expenses -- within centrally established limits
on both total administrative expenditures and wages paid.
To provide greater incentive to economize on capital, the
statute permits enterprises broader latitude in selling or leasing
unneeded plant and equipment and in writing off obsolete or warnout
equipment, facilities, anal inventories that cannot be repaired or sold.
Enterprises also are given the right to determine the composition of
their working capital within overall amounts established by superior
authority and subject to limitations provided by centrally established
norms on most individual elements of working capital, such as inven-
tories of specific materials.
The statute also grants enterprises the right to set prices
and to determine technical standards for some products without review
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by superior authority. This provision appears to pply only to products
produced in small quantities. for individual custom rs. Centrally
established prices and technical standards are available for most prod-
ucts produced in substantial quantities, and, although enterprises are
permitted to set provisional prices on new products, most of these
prices are subject to review by superior authorities.
3, Promised Chan es in Planning Procedures
The new statute calls for the following new planning procedures
aimed at improving the continuity and stability of planning; (1) precise,
centrally assigned output targets covering a period of years are to be
given to each enterprise t~ii-enable it to work out long-range plans ghat
take account of the future effects of current expansion and modernization
programs, (2) changes in assignments to enterprises during a given
period are to be made only in "exceptional" circumstances, and (3) ade-
quate resources are "guaranteed" to be xriade available to enterprises
to fulfill their plan assignments. These px'pva,~sa:ons are aimed at meeting
major complaints of enterprises voiced during the economic contra-
versies of recent years. These proce'diires ,have .been called 'fox re-
peatedly in the past without much effect, however, and amount to little
more than pious hopes. As long as the present tautness of planning;
is maintained, shortfalls in some sectors of the economy will require
readjustments in assignments during the plan period, and the procE~ss
of making such readjustments will provide temptations for Party aril
bureaucratic interference. Moreover, the need to make resources
available for the attainment of priority objectives will insure that
lower priority sectors -- such as consumer goods -- will continue i;o
be shortchanged.
Sources:
Ekonomicheskaya gazeta, 20 Oct 65, p. 25-2y. U.
FBIS. Daily Report (USSR and East Europe), 20 Jul 65,
p. CC 28 - CC 30. OFF USE.
A.n~.tyst:
Coord:
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Project No. 13. 5291
Title: The New Statute on the Soviet Industrial Enterprise Confidential)
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